Sharing the burden of proof in parallel importation cases: a proposal for a synthesis of United States and European Union trademark law.

• Author: Brasser, Elizabeth

In the European Economic Area (1) (EEA), the European Court of Justice (ECJ) has recently held that parallel importers of trademarked goods carry the burden of proving that the mark holder consented to the importation of such goods within the EEA. (2) While the United States has allocated the burden of proof on the trademark holder under the Lanham Act, (3) the burden of proof is on the parallel importer under the Tariff Act. (4) First, this paper will demonstrate the inadequacy of the current allocation of the burden of proof under the United States Tariff Act. (5) Second, this paper will demonstrate the need for the ECJ to clarify the parallel importer's burden of proof in trade mark infringement cases. Finally, this paper will propose changes to both the United States' and the European Union's (E.U.) allocation of the burden of proof. For the purpose of simplicity, this paper will address the trademark holder as the "plaintiff" and the parallel importer as the "defendant."

1. THE UNITED STATES' BURDEN OF PROOF

   The United States trademark law governing the parallel importation of genuine goods is found primarily in sections 42 and 32 of the Lanham Act and section 526 of the Tariff Act of 1930. (6) Under the Lanham Act, the burden of proof is on the plaintiff to prove that the goods are not "genuine" and thus likely to cause consumer confusion. (7)

   Generally, genuine goods are those "which emanate from the plaintiff or his affiliates," are intended for sale in the United States market, and comply with any quality control measures the plaintiff trademark owner has established. (8) If the plaintiff fails to carry this burden, the "unauthorized sale of [genuine] goods does not give rise to a claim for trademark infringement." (9)

   Under the Lanham Act a trademark holder has "the right to control the quality of the goods manufactured and sold under the ... trademark." (10) Where a parallel importer sells goods without maintaining the mark holder's quality control procedures, "the sale of the goods [is] sufficient 'use' for it to be liable for ... infringement and its claimed lack of knowledge of its supplier's infringement, even if true, provides no defense." (11) Thus in El Greco Leather Products v. Shoe World, (12) the goods were not genuine because the parallel importer failed to obtain the certificates of quality approval required by the mark holder's licensing agreement with the manufacturer. (13) Likewise, in Davidoff & CIE SA v. PLD Int. Corp., (14) where a third party removed batch codes on the mark holders products, the goods were deemed not genuine because "the defendants [deprived the plaintiff mark holder] of their exclusive right to control the quality of their products." (15)

   Furthermore if goods are manufactured under quality control measures that are not established by the mark holder, the goods are not genuine. (16) Consequently, in Shell Oil Co. v. Commercial Petroleum Inc., (17) the court found an infringement where the third party implemented its own quality control procedures. (18)

   The plaintiff's right to control quality measures, however, may be waived if the plaintiff has not previously enforced such quality control procedures. (19) In Polymer Technology Corp. v. Emile Mimran, (20) the mark holder claimed that the defendant had infringed its trademark by not complying with the Food and Drug Administration's (FDA) quality requirements. (21) The Polymer court, while noting that the trademark holder was subject to criminal penalty for failure to comply with the FDA's requirements, found that the mark holder must impose similar requirements on its authorized distributors in order to claim infringement by a non-complying third party. (22) Likewise, in Diamond Supply Co. v. Prudential Paper Products, (23) where the plaintiff mark holder told the defendant manufacturer to "do whatever it wanted" with rejected supplies, it thereby waived its right to enforce quality control procedures when the goods were sold to a third party. (24)

   Restrictive contract language may also affect the genuine status of a good. (25) Thus a plaintiff may bear his burden by proving the goods in question were intended for sale on a foreign market or for a different class and that their resale on the current market causes confusion among customers. (26) If a trademark holder's "intent to restrict resale [to a class of customers or territory] is clear," the parallel importer may be held liable for infringement regardless of his knowledge of the restriction. (27) In such a case, the burden is on the plaintiff to show that the sale of the goods was contractually restricted and the goods are materially different from those on the United States market. (28) Thus in Original Appalachian Artworks v. Granada Electronics, (29) the court found an infringement where the mark holder had contractually restricted the sale of its goods by a licensee to the territory of Spain. (30) The Original Court concluded that because the instructions for the goods manufactured in Spain were in a different language from those distributed in the United States, they were materially different and thus confusing to the public. (31) The Original court, however, noted that there generally is no infringement where the goods sold by the parallel importer are manufactured for sale in the United States, despite differences or inferior quality to those manufactured in the United States. (32)

   The material differences in the products must lead to the confusion of customers. (33) In Polymer Tech Corp. v. Emile Mimran, (34) the plaintiff mark holder had not included contractual restrictions but had labeled the goods "for professional dispensing only." (35) The Polymer court found that the defendant could not be liable for infringement if there was not a contractual restriction on resale. (36) In addition, the Polymer court noted that even if there was a contractual restriction, the trademark owner must prove consumer confusion. (37) Subsequently, the Polymer Court concluded that there was no infringement because the plaintiff failed to prove that the label would cause consumer confusion when sold in a retail store. (38)

   United States trademark owners also receive protection under section 526 of the Tariff Act. (39) The Tariff Act generally prohibits the importation of goods under a trademark owed by a United States citizen without the written consent of the trademark holder. (40) The Tariff Act was the congressional response to a court of appeals decision that failed to enjoin a foreign trademark owner from importing its goods into the United States after it sold the trademark and distribution rights to a domestic firm. (41) There are, however, exceptions to the Tariff Act's general prohibition of parallel importation. (42) In Kmart v. Cartier, (43) the Supreme Court established the "common control exception" which effectively permits the importation of trademarked goods without the consent of the domestic trademark holder "where that mark holder is either a parent, a subsidiary of, or held in common ownership with a foreign manufacturer." (44) The common control exception, however, is limited to situations where the imported goods are identical to those on the United States market. (45) Therefore, if goods are imported by an entity that has a corporate relationship with a domestic trademark holder, the burden is on the plaintiff trademark holder to prove the goods in question are materially different from those on the United States market. (46)

   The Court in Kmart, while allowing for the common control exception to the Tariff Act, rejected a proposed "authorized use exception." (47) The Court reasoned that the authorized use exception would allow a third party who bought the goods from a foreign manufacturer to legally import those goods into the United States without the permission of the mark holder, resulting in "steep intrabrand competition." (48) The Court concluded that if such parallel importation were permitted it could "jeopardize the trademark holder's investment." (49)

   A parallel importer who violates the Tariff Act may be subject to damages and profits and required to either export or destroy the merchandise. (50) While trademark owners must register their authorized licensees with Customs, the mere listing of an authorized licensee does not indicate the trademark holder's consent to imports by that licensee or by a third party. (51) Customs interpretation of the Tariff Act merely provides administrative ease by allowing Customs to exclude importers who are not listed as licensees of the domestic trademark holder. (52)

   In summary, cases involving violations of the Lanham Act turn on the plaintiff's ability to prove the goods in question are not genuine and thus likely to cause confusion. (53) Because the burden of proof is allocated to the plaintiff in these actions, the goods are presumed to be on the market with the brand owner's consent. (54) This presumption is in accord with the general rule that an "unauthorized sale of authorized [or genuine] goods does not give rise to a claim for trademark infringement." (55) If the plaintiff is able to prove that the goods are not genuine and likely to cause confusion, the presumption fails and the defendant parallel importer is liable for infringement. (56) If however, the plaintiff fails to carry this burden of proof, the presumption of consent stands. (57) The concept of waiver under the Lanham Act could be characterized as the trademark holder's implied consent. (58) By failing to adequately enforce quality control measures or include unambiguous contractual restrictions, the trademark holder has impliedly consented or waived his right to protest further resale. (59)

   In contrast, under the Tariff Act the burden is on the defendant to prove it had the express written consent of the trademark holder, or that the goods are identical and it has a corporate relationship with the trademark holder...